MannKind (MNKD) presented today at the HC Wainwright Global Investment Conference. One of the big differences between this presentation and similar ones over the past two years, to be blunt, is that the company is not looking for money at this conference. In the past, MannKind has essentially been in a perpetual cash crunch in one way or another. The company has needed cash, and the only realistic mechanism to raise it has been through stock offerings. Conferences such as this have really been about convincing the players on the Street to participate in an offering of some sort.
This conference is a bit different. MannKind now has a cash runway that can get it through the next 3-4 quarters and additional cash availability that can stretch things out further. This begs the question, if it doesn’t need money, why participate? That answer is simple. MannKind has now graduated to doing presentations in order to attract more institutional investors to the existing equity instead of equity tied to an offering. It does not sound sexy, but it is a bit of a new reality that investors in the stock should appreciate. MannKind has not solved all of its hurdles, but has gotten to a point where its cash and cash burn have improved.
As expected, there was not much presented at the conference that is new to those that follow the equity closely. What is more important than long-time investors yearning for new news is potential new institutional investors catching up on the story and becoming informed. Indeed, there were some over-passionate long-term investors that felt a partnership for Afrezza needed to be announced today or that the CEO should be canned. That is simply a demonstration of letting emotion get in the way. Expecting an Afrezza partnership when the financials of the drug are not even close to ideal is expecting something that is simply unrealistic.
As anticipated, the company did announce its first shipment to Brazil. No financials were given with regard to that shipment. Some investors were in hope of seeing additional comment on a second licensed molecule from United Therapeutics (UTHR), but that news was not forthcoming. MannKind has demonstrated that the undisclosed molecule will work on the platform, but this boils down to a business decision for United which is not as straightforward as many think.
For the week ending August 30th, Afrezza scripts came in at 750. This essentially closes out the month. As long-time readers are aware, there are now monthly Afrezza net revenue targets which need to be maintained as part of the MidCap loan agreement. The 12-month trailing Afrezza net revenue for August 31st needed to be at $21,500,000. By my estimation, the company had 12-month trailing revenue of $22.8 million. Currently, there is a healthy cushion in meeting the minimum Afrezza net revenue covenants.
(Chart Source – Spencer Osborne)
The next Afrezza net revenue target is for September. The 12-month trailing revenue needed at the end of September is $22.5 million. This milestone, in my opinion, is already achieved. Beginning in October and through December, the targets go up by $1.5 million per month. In my opinion, these higher monthly totals will begin to be problematic for MannKind if only US sales were considered. The net revenue for Brazil will be very important to achieving the $27 million in net revenue needed by December 31st.
As I stated above in the discussion of MannKind’s presentation, the cash situation is much better than it once was. I estimate that the company finished August with $57,000,000 in cash. While script growth is slower than desired, each step in growth does improve the cash burn story. I anticipate that MannKind will receive an infusion of $12.5 million from the TrepT deal with United Therapeutics prior to the end of the year. My cash projections do not yet consider monies tied to the Brazil deal.
(Chart Source – Spencer Osborne)
As I have previously stated, MannKind is speculative in nature. I had recently labeled the equity as a speculative buy when the stock was down at about $1.00. This equity will tend to have a trading range, and the existence of 23.3 million warrant shares at $1.60 can serve as a cap to the stock price. Savvy traders will play the current trading range of $1.00-1.35 with a mental stop at $0.95. The buy point is anywhere near $1.00, and the sell point is indicated when volume dries up on any pop. This trading range will likely remain in play until a catalyst is announced.
While long-term investors may be frustrated with the lack of sexy developments at the presentation, they should reflect on who the actual audience is. CEO Mike Castagna is a polished speaker, which is an important part of his function at such conferences. The good news is that with much better financials, management now has the ability to get past the first obvious objection institutional investors might have. In the past, MannKind likely got the door slammed shut once the cash situation was discussed. These days, it can navigate past the cash crunch and discuss investment opportunities with the players of Wall Street. That is a big and critical difference that many less-experienced retail investors may not grasp. This dynamic is still new, and it will take some time to evolve, but there is a smart play here at the right point in time. In my opinion, the biggest drawback in getting institutes to buy in is the warrant overhang at $1.60 per share. Those warrants expire in late December. Once that issue is resolved, bigger doors open for institutional players. Savvy retailers can play these dynamics for a few months yet. Stay tuned!
Disclosure: I am/we are long UTHR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have no position in MannKind.